Improving housing market facing one last hurdle: tight credit

There is a growing consensus that 2013 will be the year the housing market across the country and here in San Diego will finally turn around and prices will start to regain momentum.

For the most part, home prices are still attractive, and mortgage interest rates have never been lower. Freddie Mac announced Thursday the average rate on a 30-year fixed mortgage dropped to 3.34 percent, the lowest rate in history.

However, what does it matter if interest rates are low, but it remains difficult to qualify for a home loan?

That question was on the mind of Federal Reserve Board Chairman Ben Bernanke on Thursday when he addressed the Operation HOPE Global Financial Dignity Summit.

“Homeownership rates have declined because fewer households have chosen, or have been able, to become new homeowners in recent years," he said. "Buying a home usually means obtaining a mortgage, and the data show that the pace of mortgage lending has fallen considerably on a national basis.”

He said unemployment, income loss and income insecurity have been detrimental to attracting new buyers.

"I believe that tight credit nevertheless remains an important factor as well," Bernanke added. "When lenders were asked why they have originated fewer mortgages, they cited a variety of concerns, starting with worries about the economy, the outlook for house prices, and their existing real estate loan exposures.”

Some would argue the cavalier lending attitude that was popular at the peak of the housing boom was a contributing factor to the sharp decline in housing prices sweeping over the country. But many of the damaging sub-prime loans that brought unqualified buyers into the housing market have been washed out in recent years.

The Mortgage Bankers Association reported Thursday that the delinquency rate for mortgage loans on residential properties fell to 7.4 percent at the end of the third quarter.

“The 90-day delinquency rate is at the lowest level since 2008, and together with the decline in the percentage of loans in foreclosure, this indicates a significant drop in the shadow inventory of distressed loans, a real positive for the housing market,” said Mike Fratantoni, vice president of research and economics at the association.

Lynn Reaser, chief economist at Point Loma Nazarene University’s Fermanian Business & Economic Institute, released her 2013 economic outlook report Thursday and identified housing as the leading component of a local and statewide economic recovery.

“While it could take a number of years to return to prior peak levels, homes in prime areas could see significant appreciation," Reaser wrote in her report. "There is some evidence that home financing is easing, which can allow for once in a lifetime mortgage rates for many homeowners.”

To be sure, lenders are sensitive to the charges that they are being too restrictive when it comes to making new residential real estate loans.

“There are many potential reasons for this, such as repurchase risk, regulatory concerns and lack of underwriting capacity," said Timothy Mayopoulos, president of Fannie Mae. "These issues clearly need to be addressed by the industry, and we will continue to do our part.”

Perhaps David Stevens, president of the Mortgage Bankers Association, described the situation best in comments at a conference earlier this month.

“Let’s be clear here. This is ultimately about consumers, the middle-class families who want home loans, the families that can afford home loans and yet are being squeezed out of the opportunity due to the restricted credit environment," he said. "We must restore a competitive and efficient marketplace where all have the opportunity for growth."